Q-Last October we foolishly signed a six-month listing with a real estate agent who was highly recommended to us by a friend. Stupidly, we believed everything the agent said, such as “Six months is the minimum listing term.”
The agent hasn’t shown our home to anybody since early November. When I phone her she tells me, “The market is slow.” But I met another agent at church and he said our agent is bitterly disliked by many local agents so they won’t show her listings. When I phoned our agent to cancel our listing, she said we can’t do that until it expires in April.
But we need to get our home sold before then. Can we cancel a six-month listing?
A-You, the principal, can fire your agent at any time (unless the agency is coupled with an interest in the property). However, you might be liable to the agent for a full sales commission if the listing so provides. Read your listing contract.
Although a real estate agent rarely sues a seller for a sales commission when a listing is canceled, it is best to part on a friendly basis. The wise approach is to have a conference with the agent and her broker to work out a listing transfer to a more successful agent. That way your original agent will get a referral commission when your home eventually sells.
Your situation is a classic example of why I recommend (1) interviewing at least three successful local agents before listing your home with the best agent and (2) never signing a listing for longer than 90 days unless it has an unconditional cancellation clause. For further details, please consult a local real estate attorney.
Q-I need to make investments that will produce at least a 10 percent annual cash flow. You often recommend rental-house investments. Will they give me a 10 percent cash flow yield on my investment?
A-No. Rental houses are long-term investments. I recommend buying sound, well-located fixer-upper houses that can be purchased at least 20 percent to 30 percent below market value. Distress properties and foreclosures make the best bargains. It takes work to find these houses but they can be well worth the effort.
Then fix up the rental house. Aim for a $2 market value increase for each $1 spent on capital improvements. After the renovation, you can either hold the house for long-term investment (called a “keeper”), or sell the house for a short-term resale profit (called a “flipper”). But rental houses rarely produce a 10 percent cash flow on the dollars invested.
Q-I have studied several books from the library on how to sell a home without a real estate agent. As I plan to put my house on the market in February or March and sell it myself, do you think I should hire a professional appraiser to estimate its market value? I hate to spend the $300 appraisal fee I’ve been quoted.
A-You sound like a penny-pincher. If you are going to risk selling your home alone without a professional real estate agent, you definitely need to get a professional appraisal to avoid selling below market value.
But before you absolutely decide to sell without an agent, please do me a favor and interview at least three successful realty agents. They will welcome the opportunity to try to get your listing.
Each agent should give you a written CMA (comparative market analysis) showing recent sales prices of similar neighborhood homes and asking prices of comparable nearby houses. With all this information, then you can set an intelligent asking price.
Most do-it-yourself home sellers eventually list their homes for sale with professional agents. You probably will, too.
Q-In 1994, my husband and I refinanced our mortgage at 6.75 percent fixed interest. We are debating whether to pay it off rapidly to save interest. By adding $172 extra to each monthly payment, we can pay off our loan in about 16 years instead of 30 years. I think we should do so, but my husband feels we should invest the money in our tax-free retirement account mutual fund.
A-Congratulations on refinancing your mortgage at exactly the right time. Few people did so. When calculating your after-tax interest rate, you will find it is a bargain around 5 percent.
My suggestion is, don’t prepay your low interest rate mortgage since you have a more profitable investment alternative. Of course, there is no guarantee the mutual fund will continue to produce such a high yield, but if you invest the $172 per month in that retirement account, the tax-free compounding will be far more profitable than prepaying your low interest rate mortgage.
Q-My husband and I own our home free and clear. I am 78 and he is 83. His health is not too good and my eyesight is failing. Our daughter is our only heir. She suggests deeding our home to her now so she can sell it and use the proceeds to pay for us to live in a nice retirement home. Is this a good idea?
A-If you gift your residence now to your daughter, she takes over your low adjusted cost basis. Also, you wouldn’t get any benefit from the “over 55 rule” $125,000 home sale tax exemption. When your daughter resells the house to pay for your retirement home expenses, her profit will be taxable.
That does not sound like a good plan.
Presuming the home must be sold to provide adequate funds for you to move to a retirement residence, you would be better off selling the house rather than gifting it to your daughter. However, if you don’t want to move but just need additional retirement income, look into a reverse mortgage that will pay you monthly income based on your life expectancies.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
Robert Bruss’ report, “How Home Buyers and Sellers Can Take Maximum Advantage of Their Real Estate Agent’s Services,” is available for $4 from Tribune Media Services, 435 N. Michigan Ave., Room 1408, Chicago, Ill. 60611. Allow eight weeks for delivery.
